Tech

Apple addresses iPhone 4 reception issues

Jobs says problem 'blown way out of proportion'; users to get free case

By

DanGallagher

CUPERTINO (MarketWatch) -- Apple Inc. addressed the growing complaints about the reception of its iPhone 4 on Friday, saying it will give a free case to all buyers of the device through the end of September, but adding that the problem has been "blown way out of proportion" in the media.

During a press conference at Apple's
AAPL, +1.72%
headquarters in Cupertino, Calif., Chief Executive Steve Jobs struck a largely defensive posture about the company's latest device, saying the reception problems have affected "a very small percentage of iPhone 4 buyers." He said all smart-phone devices have "weak spots" in their antenna design, but the iPhone 4's external antenna makes that weak spot obvious.

As a solution, Jobs said the company has updated the iPhone's software to make the signal display more accurate. It will also give away free cases or "bumpers" to iPhone 4 buyers, as well as those who have purchased the device already. That will last through the end of September, at which time Jobs said the company will evaluate the program.

"We've been working our asses off," Jobs added at the event, referring to the last three weeks since the launch of the iPhone 4. "We've been working really, really hard to try and understand what the real problem is so that when we fix it, it's really fixed."

However, he spent the bulk of the event defending the company -- and the iPhone 4. Apple has seen little business impact from the problem; Jobs said the company has sold "well over" 3 million units in the first three weeks. He said less than 1% of the iPhone 4 customers who have called the company's customer service line have complained about the antenna or reception.

Apple's shares closed Friday trading down slightly. The stock got a brief lift after the news conference before being weighed down by a broad market sell-off.

A bull's eye

Some iPhone 4 users have complained that the phone suffered a severe loss of signal strength -- leading to dropped calls in some cases -- if it were held in certain ways, particularly when the lower left corner of the device was covered by the hand. Complaints about the device have grown since it first went on sale three weeks ago.

The problem, according to Jobs, is mostly one that is common to all wireless phones, in that when a user grips the device tightly, signal strength can fall in areas where it is already weak. During the event, Jobs displayed videos of competing products from Research In Motion Ltd.
RIMM
Samsung and HTC that showed a similar reaction.

Since the iPhone 4 carries a notably different design from its predecessors, with a metal band around the outside border of the device that serves as the antenna, Jobs speculated that part of the issue also may have been that the antenna's weak spot is visible.

Consumer Reports issued a statement on Friday, saying that providing free bumpers and cases "is a good first step toward Apple identifying and finding a solution for the signal-loss problem of the iPhone 4."

Todd Day, a wireless analyst for Frost & Sullivan, said Apple's rivals in the smartphone market may try to counter the company's claims that all devices have the same problems. But he agreed that much of the noise surrounding the iPhone 4 "has been over-hyped."

"If you say there's no real difference, but come out and give away free cases anyway, you're kind of saying there is a design flaw," Day said.

PR problem

The iPhone has become Apple's most important business line, surpassing the Mac computer business in terms of sales and profits.

Apple said it has sold "well over" 3 million units of the device to date; more than 1.7 million units were sold in the first three days on the market. Those units will likely be included in the company's earnings report for the third fiscal quarter, which is scheduled for July 20, after the closing bell. See earnings preview for Apple.

Shares of Apple have fallen about 4% this week -- in part on uncertainty about how the reception troubles for the iPhone 4 will affect future sales of the device, as well as on potential hits to the company's image.

Brian Marshall of Gleacher & Co. said Apple's news conference will likely restore investor confidence, since the company showed recognition of the problem and offered a solution.

"Net net, this could not have gone better for them," Marshall commented. "I think the investment community will breathe a sigh of relief."

Shaw Wu of Kaufman Bros. said the company is taking the right steps to address the problem, even though the issue has not made much of an impact on Apple's business. He expects the cost of providing the free cases to be negligible, especially for a company that has more than $40 billion in the bank.

"This was more of a PR issue than a technical or business issue," Wu said.

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